The Japan Exchange Group (JPX), which operates the Tokyo Stock Exchange, is seriously considering imposing new restrictions on listed companies that hold large amounts of cryptocurrencies (referred to as Digital Asset Treasury Companies – DATs). Concerns over such ‘crypto-hoarding’ companies have deepened following significant losses suffered by retail investors due to recent cryptocurrency price crashes.
Bloomberg reports that JPX, the operator of the Tokyo Stock Exchange (TSE), is exploring several avenues, including stiffening its backdoor listing rules and mandating a fresh audit for these companies. This move is aimed at protecting Japanese investors.
Background to Regulation and Investor Losses
The main reason for JPX’s stringent stance is the recent severe drop in the share prices of Japanese companies modeled after Michael Saylor’s MicroStrategy.
Share Price Decline and Losses
- MicroStrategy’s Impact: MicroStrategy, which holds Bitcoin valued at approximately US$66 billion, has seen its shares nearly halve since mid-July. This impact was echoed in the Japanese market.
- Metaplanet’s Situation: Tokyo-listed Metaplanet Inc (a company that shifted from the hotel business to crypto) is the world’s fourth-largest public Bitcoin holder. Its shares have dropped more than 75% from their June peak, causing major losses for retail investors.
- Convano’s Decline: The shares of nail salon company Convano Inc also plunged around 60% since late August after announcing its intention to purchase Bitcoin.
Bloomberg states that the fear that domestic investors have been directly impacted by the share price declines of these DATs is what has prompted JPX to take emergency action.
Restriction on Fundraising Capacity
Since September, three listed Japanese companies have temporarily suspended their crypto purchase plans. This follows a warning from JPX that their ability to raise funds would be restricted if they continued crypto buying as a business strategy.
While JPX currently has no general rules against crypto hoarding, it stated it is monitoring “companies whose strategy raises concerns from a risk and governance perspective, with a view to protecting shareholders and investors.”
Regulatory Measures Being Explored by JPX
JPX is exploring two main potential avenues to safeguard the integrity of the financial market:
Utilizing Backdoor Listing Rules
A backdoor listing is when a private company goes public via a merger, bypassing the standard IPO process. While JPX already prohibits backdoor listings, it is expected to expand this restriction.
- Objective: If a listed company shifts its primary business operations to crypto hoarding, it could be deemed a form of backdoor listing, bringing its activities under JPX’s restriction.
Fresh Audits and Stricter Regulations
JPX may require the companies involved to undergo a new and rigorous audit before transitioning to this risky new business model. This would ensure that the risks associated with crypto assets and their management are fully disclosed.
Additionally, there are discussions about tightening Governance and transparency regulations for holding this new class of assets.
Asia’s Sentiment and Japan’s Uniqueness
Japan holds a unique position in Asia regarding Digital Asset Treasury Companies (DATs).
- Asia-Pacific Opposition: Stock exchanges across the Asia-Pacific region, including Hong Kong, are either opposing attempts to establish new DATs or are not actively promoting them.
- Japan’s Uniqueness: In contrast, according to BitcoinTreasuries.net data, Japan has 14 listed Bitcoin buyers. This is the highest number in Asia.
This high number exacerbates JPX’s concern. The risk of a financial crisis due to a market-wide crash intensifies when more companies engage in risky crypto hoarding.
Conclusion
While an outright ban on crypto hoarding in Japan is unlikely to be imposed immediately, JPX’s monitoring effort is crucial. JPX reflects the perspective that crypto assets are not a safe investment strategy but rather a high-risk strategic business shift. This indicates that Japan wishes to segregate crypto investments from public equities and control investors’ risk exposure. These new measures are aimed at ensuring the stability of Japan’s financial market.
